A Note on the Tax Rate Implicit in Contributions to Pay-as-you-go Public Pension Systems

Beckmann, Klaus

doi:10.1628/0015221014006260

Cited by 17 publications

(11 citation statements)

References 4 publications

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“…Second, we explicitly differentiate between the pension or pension entitlement indexation and the increase in total entitlements due to increasing longevity. While Beckmann () and Fenge, Uebelmesser and Werding () relate the implicit annual tax rates to contributions, we additionally show that from a cross‐sectional accounting perspective, implicit annual tax rates may also be considered as levied on past contributions representing current pension entitlements. For this purpose, we make use of a simple three‐period overlapping generations model, which can be found in the online appendix.…”

Section: Methodsmentioning

confidence: 68%

“…Thus, the windfall profit of the introduction of the pension scheme (with pensions paid out without contributions having been paid before) must be paid back through an implicit tax by all following generations. Most studies concentrate on the implicit tax share of life‐cycle contributions, while for our cross‐sectional analysis we are interested in annual tax rates, as analysed by Beckmann () or Fenge, Uebelmesser and Werding ().…”

Section: Methodsmentioning

confidence: 99%

“…These distortions may result either from fixed obligatory contributions being different from what individuals would have chosen in the absence of a pension scheme and/or if the rate of return on savings to the pension scheme differs from the market rate of return, constituting an implicit tax of the pension scheme. While this implicit tax has been widely analysed in a life‐cycle context, we take a closer look at the implicit tax of a pension scheme from a cross‐sectional perspective, extending the work of Beckmann () and Fenge, Uebelmesser and Werding ().…”

Section: Introductionmentioning

confidence: 99%

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Accounting of the German Statutory Pension Scheme: Balance Sheet, Cross‐Sectional Internal Rate of Return and Implicit Tax Rate

Metzger

2019

Fiscal Studies

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We present a framework for accounting of the German statutory pension scheme and calculate a balance sheet for the period 2005–14. Estimating a funding ratio of about 90 per cent, we present some policy recommendations in order to restore balancing of assets and liabilities. Extending and applying the methodology proposed by Settergren and Mikula (2005), we additionally estimate the aggregate cross‐sectional internal rate of return of the German pension scheme over this period. We are able to show that these internal rates of return are mainly financed by increasing contributions and by increasing unfunded liabilities. Additionally, our analysis reveals that from an expenditure perspective, the major part of the internal rate of return results from changing longevity rather than other changes. We also estimate the implicit tax rates from a cross‐sectional perspective and find that they can mainly be interpreted as an ‘implicit wealth tax’ on pension wealth. Finally, we analyse the impact of demographic change on the balance sheet employing a population projection. While the pure demographic effect leads to a decreasing funding ratio during population ageing, the automatic balancing mechanisms of the German pension scheme lead to a significant overfunding in the long run from the accounting perspective adopted in the Swedish pension system.

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Section: Methodsmentioning

confidence: 68%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Accounting of the German Statutory Pension Scheme: Balance Sheet, Cross‐Sectional Internal Rate of Return and Implicit Tax Rate

Metzger

2019

Fiscal Studies

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“…This measure was first used by Lüdeke (1988) and Homburg and Richter (1990). 3 For an analysis of the way contributed income in different periods is aggregated in the pension formula and the resulting incentives to supply labor over the life cycle, see Beckmann (2000) and Fenge,Übelmesser, and Werding (2002). 4 See also Breyer (1997).…”

Section: Introductionmentioning

confidence: 99%

The German Retirement Benefit Formula: Drawbacks and Alternatives

Breyer¹,

Kifmann²

2004

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Preliminary version, comments are invited. Terms of use: Documents in AbstractIn this paper we identify a number of objectionable features of the German retirement benefit formula. We show that groups of insureds with higher than average life expectancy, in particular high-income groups, are subsidized by the rest of the membership because the formula neglects differences in group-specific life expectancy. Furthermore, the current formula leads to undesirable long-run effects if the earnings ceilings is raised, mandatory membership is extended, life expectancy rises or the rate of population growth declines. We present two alternative formulas which take group-specific life expectancy into account. In particular, a return-rate formula which rewards each Euro of contributions with the internal rate of return of the pay-as-you-go pension system proves to be superior to the current formula.JEL-classification: H55, H22, J18.

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“…Vgl. Beckmann (), S. 64 oder Hirte (), S. 2. In der Rentenversicherung stimmt der Steuerkeil im Sinne von marginalen Steuersätzen mit den Durchschnittsteuersätzen überein.…”

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Auswirkungen einer Einbeziehung der Selbständigen in die Gesetzliche Rentenversicherung

Gasche

Rausch

2013

Perspektiven der Wirtschaftspolitik

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This study analyses the theoretical and empirical effects of an inclusion of self‐employed persons in the German Pension System. First, the theoretical consequences for the contribution rate are analyzed using a simple OLG model. Second, the implications for the contribution rate are simulated for different scenarios using the pension simulation model MEA‐Pensim. It appears that in the short and middle run the inclusion of the self‐employed persons leads to a reduction of the contribution rate. The degree of this temporary effect depends essentially on the assumed contribution assessment basis, the size and characteristics of the included group of people (all self‐employed persons or only the self‐employed persons without employees), and the age at which for older currently self‐employed persons a preservation of the status quo will be established (inclusion of self‐employed persons under the age of 50 or the age of 30). The maximal contribution rate effect arises with 1.3 percent points by including all self‐employed persons with the net income as contribution basis. In this case the standard pension level would be 2.1 percent points higher. In the long run (until 2060) and independently of the underlying assumptions the contribution rate reaches the same level compared to a status quo scenario where the self‐employed persons are still exempt. Given a higher life expectancy for the self‐employed their inclusion increases the contribution rate slightly in the long run. In terms of people who are already insured by the German pension system the reform has positive effects with regard to efficiency. Furthermore the equal treatment between generations improves for those who are already insured.

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A Note on the Tax Rate Implicit in Contributions to Pay-as-you-go Public Pension Systems

Cited by 17 publications

References 4 publications

Accounting of the German Statutory Pension Scheme: Balance Sheet, Cross‐Sectional Internal Rate of Return and Implicit Tax Rate

Accounting of the German Statutory Pension Scheme: Balance Sheet, Cross‐Sectional Internal Rate of Return and Implicit Tax Rate

The German Retirement Benefit Formula: Drawbacks and Alternatives

Auswirkungen einer Einbeziehung der Selbständigen in die Gesetzliche Rentenversicherung

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